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The Finance Ghost: The lowdown on Capitec, Balwin and ADvTECH

The Finance Ghost: The lowdown on Capitec, Balwin and ADvTECH
The Finance Ghost
By The Finance Ghost
6 Oct 2024
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Capitec is giving the market a master class, while Balwin has been in a sorry state. The likes of ADvTECH, meanwhile, are answering the call for more tertiary institutions.

It feels impossible to look at the past week and not focus on Capitec. Most high-growth companies eventually run out of steam, maturing in their markets and having to play a more defensive game around market share. Not so at Capitec, where the banking group seems like it’s only just warming up.

With growth in Heps and the interim dividend of 36%, as well as an increase in return on equity from 24% to 29%, Capitec is giving the market a master class. For the lumbering giants that Capitec is up against, a CEO would be happy to achieve a 100- to 250-basis points improvement in return on equity over several years. Capitec just delivered 500 basis points in a single year.

The difference at Capitec is that the growth story of the past few years hasn’t just relied on high interest rates. Instead, it’s been driven by genuine growth drivers in the underlying business.

Capitec’s share price return over the past year of 78% says it all, really.

Will Balwin finally turn the corner?


Balwin has been in a sad and sorry state of affairs. The share price is down 80% since it listed in 2015.

But a demanding starting valuation isn’t why things fell apart for Balwin. There have been many other reasons. You’ll also struggle to find anyone in the investment industry with a glowing view of Balwin management.

Particularly with attempting to imply that Balwin withheld supply and hence sales were lower. The blunt truth is that the scarcity is in demand, not supply.

With apartment sales down from 834 to 640 for the six months to August, a decline in Heps of between 54% and 59% is unsurprising. The annuity business lines did pretty well in this period, but the fact that the annuity contribution to group revenue is up from 4.7% to 8% is less to do with Balwin’s brilliance at smoothing its earnings with recurring income and more to do with poor performance in property sales.

Can things get better? The recent drop in interest rates will help, and it’s not impossible that the improved sentiment around South Africa slows down the revolving door of people leaving Gauteng, which would give Balwin a chance to improve its sales there.

But most of all, it would help if management stopped with drivel like suggesting that they created scarcity of demand. The market really isn’t that easy to fool.

Business steps in


When the #FeesMustFall chaos erupted across public universities in South Africas about a decade ago, the writing was on the wall. In the same way that private schooling had become the go-to for higher-income South Africans at primary and secondary level, it seemed likely it would happen at tertiary level.

The public universities aren’t going anywhere just yet, but those disruptions set the wheels in motion for private institutions to grow in popularity. Another factor is that demand far exceeds supply for tertiary education (take notes here, Balwin), so it makes sense for tertiary institutions to be built.

This has been a powerful growth driver for the likes of Stadio, the tertiary education business that was incubated in Curro. ADvTECH has also been all over this.

The latest news is that ADvTECH is building a university in Sandton. The investment plan? A cool R419-million over two years, sticking a solid tertiary business right in the heart of Africa’s economic hub.

It’s much easier to go where the ducks are quacking in a market. Capitec has demonstrated just how many ducks there are in the banking industry, demanding cheaper fees and simpler systems. In ADvTECH’s world, the quacking is firmly in the tertiary space. They are standing next to the pond, answering the call. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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